Appeal from Circuit Court, Multnomah County.
Robert W. Redding, Judge.
Argued and submitted October 29, 2002.
Cathy E. Crandall argued the cause for appellants. On the opening brief were
Peter R. Chamberlain and Bodyfelt Mount Stroup & Chamberlain LLP. On the reply
brief were James L. Hiller and Hitt Hiller& Monfils LLP.
Peter R. Mersereau argued the cause for respondent Mark E. Griffin. On the brief
were Thomas W. McPherson and Mersereau & Shannon LLP.
Ralph C. Spooner and Spooner Much & Ammann PC waived appearance for
respondents Paul M. Ferder, W. Wallace Ogdahl, Christopher J. Casebeer,
Carla French, Ferder Brandt & French LLP, and Ferder, Ogdahl, Brandt &
Casebeer.
Susan K. Eggum waived appearance for respondents William D. Brandt and
William D. Brandt, PC.
Alan Gladstone waived appearance for respondents James E. McCandlish and
Griffin McCandlish, an Oregon corporation.
Before Landau, Presiding Judge, and Armstrong and Brewer, Judges.
ARMSTRONG, J.
Affirmed.
ARMSTRONG, J.
Plaintiffs retained defendants to represent them against Mac Tools and
Stanley Works, Inc. (Mac/Stanley), for which they were distributors. Defendants
negotiated a settlement agreement with Mac/Stanley on plaintiffs' behalf that contained as
a settlement condition an agreement by Mac/Stanley to employ defendants. The effect of
that provision was to prevent defendants from representing future claimants against
Mac/Stanley. Plaintiffs signed the agreement because they believed that they had no
other choice, but they filed a complaint with the Oregon State Bar concerning defendants'
conduct and subsequently filed this action, asserting claims for breach of fiduciary duty
and fraud. Plaintiffs appeal from a judgment that dismissed their claims on the grounds
that they are barred by the statute of limitation and that they failed to state a claim. We
affirm.
The complaint alleges that plaintiffs retained defendants in December 1992
to represent them against Mac/Stanley. Defendants also represented 48 other distributors
who had claims against Mac/Stanley. Defendants negotiated a global settlement with
Mac/Stanley on behalf of plaintiffs and all of the other claimants. During the
negotiations, Mac/Stanley proposed that, after execution of the settlement agreements,
Mac/Stanley would retain defendants for legal advice on the recruitment, training, and
termination of distributors, and proposed to insert in the settlement agreement a paragraph
that disclosed Mac/Stanley's plan to retain defendants. Defendants at first rejected the
idea, questioning the ethics of it. Subsequently, however, the retention of defendants by
Mac/Stanley became a condition of the settlement. Before the settlement agreements
were executed, defendants signed agreements with Mac/Stanley for the year 1994, under
which Mac/Stanley retained defendants for a fee of $10,000. Pursuant to the agreements,
defendants were disqualified from representing distributors in litigation against
Mac/Stanley. The retainer agreements provided that Mac/Stanley would indemnify
defendants if any claim or complaint was brought against them as a result of entering into
the agreements. The retainer agreements were placed in escrow and were to be released
only if all claimants signed and delivered their settlement agreements by January 26,
1994.
By letter to plaintiffs on January 17, 1994, defendants disclosed the terms of
the settlement agreement and some facts about their agreement to represent Mac/Stanley:

"After we obtained Mac/Stanley's agreement to resolve our cases for
a sum certain, Mac/Stanley made a separate offer to hire Griffin
McCandlish and Ferder, Ogdahl, Brandt & Casebeer to work for
Mac/Stanley in the future. Mac/Stanley's retaining of Griffin McCandlish
and Ferder, Ogdahl, Brandt & Casebeer was not solicited by us in any way.
However, after consideration, Griffin McCandlish and Ferder, Ogdahl,
Brandt & Casebeer agreed to provide certain legal advice and counsel on
improving their distribution recruitment practices. Once we are retained by
Mac we will be unable to pursue claims like yours against Mac/Stanley in
the future. We are disclosing this information to you because we feel that
we have an obligation to do so and ask that you sign this letter and return it
to us as your acknowledgment of this disclosure.
"Because this situation may appear to create a conflict of interest, we
recommend that you seek independent legal advice to determine if consent
should be given."

Plaintiffs did consult with independent legal counsel, Richard Kuhling, who
met with Griffin. Griffin did not disclose to Kuhling the existence or terms of the signed
retainer agreements or the escrow of those agreements. On January 28, 1994, Kuhling
wrote a letter to plaintiffs explaining his view of the ethical issues that were raised by
defendants' agreement to provide legal services to Mac/Stanley:

"Continuing the client relationship once the lawyer's professional
judgment may have been affected by the lawyer's financial and personal
interest in violation of Disciplinary Rule 5-101.
"Failure to provide timely and full disclosure concerning the lawyer's
proposed representation of the party adverse to you in violation of
Disciplinary Rule 5-105(c).
"Participating in the making of an aggregate settlement without full
disclosure to you of the nature of all the claims and the participation of each
person in violation of Disciplinary Rule 5-107.
"Prejudicing your interests by inhibiting your ability to investigate
and discuss claims against Mac Tools with 48 prior claimants except under
Subpoena and in the presence of Mac Tools' lawyers in violation of
Disciplinary Rule 5-107 and Disciplinary Rule 10-101(b)(1).
"Failure to make 'full disclosure' as required by Disciplinary Rule 10-101(b)(1)."

Despite their concerns about defendants' agreement with Mac/Stanley and
their belief that the settlement amount was too small, plaintiffs signed the settlement
agreement on January 28, 1994, because they faced cash flow problems and possible
bankruptcy. The settlement agreement contained the following paragraph:

"Retention of Counsel. Distributor understands that, upon execution of this
Agreement resolving all matters and disputes between the Distributor and
Mac Tools, counsel for the Distributor will be retained by Mac Tools at
counsel's normal hourly rates to advise Mac Tools, and the Distributor
approves of this retention. By his signature approving this agreement,
counsel for Distributor agrees to, acknowledges, approves and accepts this
retention."

Plaintiffs subsequently filed a complaint against defendants with the
Oregon State Bar. In a May 30, 1994, letter to the Oregon State Bar, plaintiffs wrote:

"By their own admission in the letters and by inserting the retainer
clause in the settlement Messrs. Brandt and Griffin must have had
considerable knowledge of and plans to represent Mac Tools in the future.
This retainer agreement was obviously planned out long before the
culmination of the settlement agreements. I find it highly unlikely that there
was no discussion of this before the settlement was finalized. The inclusion
of the waiver of representation clause in our settlement is proof that this
issue was discussed between our lawyers and Mac before settlements were
finalized. * * *
"* * * * *
"* * * We are not confident that our attorneys had only our best
interests in mind during the negotiation process with Mac Tools."

The disciplinary matter resulted in a determination that defendants Griffin
and Brandt had violated three disciplinary rules: DR 5-101(A)(1) (prohibiting accepting
or continuing employment when exercise of lawyer's judgment will be or reasonably may
be affected by lawyer's own interest, except with consent of client after full disclosure);
DR 1-102(A)(3) (prohibiting engaging in conduct involving dishonesty, fraud, deceit, or
misrepresentation); and DR 2-108(B) (prohibiting, in connection with settlement, entering
into an agreement that restricts a lawyer's right to practice law). The Supreme Court
imposed a suspension of defendants Brandt and Griffin from the practice of law for 13
and 12 months, respectively. In re Brandt/Griffin, 331 Or 113, 148-49, 10 P3d 906
(2000).
As relevant to this proceeding, the Supreme Court found in the disciplinary
matter that defendants had signed the retainer agreements with Mac/Stanley before the
settlement agreement had been executed by plaintiffs and that all of the terms of the
retainer agreements had not been disclosed to plaintiffs before they signed the settlement
agreement:

"Nothing in the accused's letter to [plaintiff] Bramel informed him
that, on January 11, 1994, the accused had signed retainer agreements with
Stanley and placed them in escrow. As explained above, as of January
11--when the accused agreed to be retained by Stanley before Bramel had
agreed to the amount of the settlement that the lawyers had reached on
December 20--the accused's interests were divided between at least one of
their current clients, Bramel, and Stanley when it came to recommending
whether Bramel should accept the settlement. In other words, beginning on
January 11, 1994, it is possible that the accused's relationship with Stanley
motivated them to recommend to Bramel a settlement that they would not
have recommended--and that was not as favorable to Bramel as it could
have been--if their loyalty had not been divided. Nothing in the letter
informed Bramel that the accused's retainer agreements with Stanley
contained indemnity provisions [e]nsuring that the accused would be
protected fully by Stanley if Bramel decided to bring a claim against them
because of the conflict of interest that they had acquired on January 11. A
potential adverse impact of the indemnity provisions on Bramel was that,
because of that protection, the accused's interests might be aligned with
Stanley, not Bramel, their current client. The letter of January 17, 1994, fell
short of the full disclosure required by DR 10-101(B).
"The accused contend that their disclosure satisfied the requirements
of DR 10-101(B), because it led Bramel to believe that his lawyers had
'switched sides' and had 'betrayed' him during settlement negotiations and
that Kuhling then had advised Bramel about the potential adverse effects of
the accused's conflict of interest. That argument is without merit. DR
10-101(B) requires the explanation that the lawyer gives to the client to be
sufficient to apprise the client of the adverse consequences of the lawyer's
conflict. The rule does not direct us to examine the client's subjective
understanding of the lawyer's explanation, whether or not enhanced by
consultation with an independent lawyer. Additionally, under DR
10-101(B), the issues of the sufficiency of the disclosure and consultation
with independent counsel are separate: A lawyer must, when full disclosure
is required under DR 5-101(A)(1), provide disclosure sufficient to apprise
the client of adverse consequences and advise the client to seek independent
counsel. DR 10-101(B) does not provide that advice from independent
counsel may serve as a post hoc substitute for the lawyer's own disclosure.
Moreover, the disclosure that the lawyer gives the client will affect the
ability of independent counsel to assess the conflict and to advise the client.
We hold that the accused violated DR 5-101(A) by continuing to represent
Bramel after January 11, 1994, without having provided full disclosure to
obtain Bramel's consent."

In re Brandt/Griffin, 331 Or at 136-37. (Emphasis Supreme Court's.)
Plaintiffs filed their first complaint against defendants in federal court on
July 30, 1998. That complaint was dismissed on August 18, 1999, for lack of diversity
jurisdiction. Plaintiffs filed this action on August 17, 2000, (1)
alleging that, in failing to
disclose the existence and terms of the retainer agreements and the escrow of those
agreements, defendants had breached their fiduciary duty to plaintiffs and committed
fraud. Plaintiffs asserted that they did not learn the complete terms of defendants' retainer
agreements with Mac/Stanley before September or October 1997. Plaintiffs alleged that
they are entitled to recover as damages on the breach of fiduciary duty claim the attorney
fees that they paid to defendants in settling their claims against Mac/Stanley and the
attorney fees that they paid to Kuhling to advise them about the effect of defendants'
conduct on the settlement. They alleged the same damages on the fraud claim.
On cross-motions for summary judgment, the trial court dismissed the
complaint on the grounds that the complaint is barred by the statute of limitation and that
it fails to state a claim. We affirm the trial court's ruling because we agree that the statute
of limitation has run on the claim for breach of fiduciary duty and that the complaint fails
to state a claim for fraud.
Plaintiffs' claims are subject to the two-year limitation period for torts in
ORS 12.110(1):

"An action for assault, battery, false imprisonment, or for any injury
to the person or rights of another, not arising on contract, and not especially
enumerated in this chapter, shall be commenced within two years; provided,
that in an action based on fraud or deceit, the limitation shall be deemed to
commence only from the discovery of the fraud or deceit."

Their claims also are subject to a discovery rule. Under that rule, a claim accrues when
the plaintiff knows or, in the exercise of reasonable care, should know facts that would
make a reasonable person aware of a substantial possibility that each of the three elements
of the claim--harm, causation, and tortious conduct--exists. Gaston v. Parsons, 318 Or
247, 864 P2d 1319 (1994).
We therefore must determine whether the record demonstrates that a factual
dispute exists about whether plaintiffs "discovered or in the exercise of reasonable care
should have discovered" the existence of their claims by July 30, 1996, which is two years
before the date on which they commenced their action in federal court. Greene v. Legacy
Emanuel Hosp., 335 Or 115, 60 P3d 535 (2002). In the context of plaintiffs' claim for
breach of fiduciary duty, the issue is whether there are questions of fact as to when
plaintiffs learned that defendants had been disloyal to them and that they had been
harmed as a result of that disloyalty. (2)On appeal, plaintiffs assert that, although they knew in January 1994 that
defendants would be retained after the settlement to represent Mac/Stanley, plaintiffs did
not have sufficient information at that time to know that they had suffered legally
cognizable harm from defendants' breach of fiduciary duty because they did not know of
the existence or terms of the January 11, 1994, retention agreements and of the escrow of
those agreements. (3)
Although plaintiffs were not aware of the January 11, 1994, retainer
agreements, that they contained an indemnity provision, or that they had been placed in
escrow contingent on the signing of the settlement agreements, we are persuaded that
plaintiffs had sufficient knowledge as early as May 1994 of defendants' disloyalty and of
injuries allegedly resulting from that disloyalty to know that they had a claim for breach
of fiduciary duty. In their January 17, 1994, letter to plaintiffs, defendants recommended
that plaintiffs seek independent legal advice in signing the settlement agreement because
the proposed retainer agreements on which the settlement was contingent "may appear to
create a conflict of interest." The January 28, 1994, letter to plaintiffs from Kuhling
warned plaintiffs of both the potential conflict of interest posed by the retainer
agreements and possible nondisclosure by defendants of the details of the negotiations
leading up to the settlement and retainer agreements. In their May 30, 1994, letter to the
Oregon State Bar, plaintiffs expressed concern over details of the negotiations that they
suspected had not been disclosed to them by defendants as well as the possibility that
defendants did not have "only our best interests in mind during the negotiation process."
Although plaintiffs may not have known the full dimensions of defendants'
disloyalty, such as the existence of the signed Mac/Stanley retainer agreements, the record
on summary judgment shows that by 1994 plaintiffs were aware of sufficient facts from
which a reasonable person would have concluded that he or she had suffered legally
cognizable harm from defendants' breach of their fiduciary duty. That is particularly true
in light of the damages that plaintiffs seek on the claim, consisting of the attorney fees
that they paid to defendants and to Kuhling in 1994. Consequently, the trial court did not
err in concluding that plaintiffs' claim for breach of fiduciary duty was time barred.
As to the fraud claim, the statute of limitation analysis is similar to the
analysis that applies to the breach of fiduciary duty claim, except that the actual or
imputed knowledge that a plaintiff must have in order to start the running of the statute
has been described as "including the fact of the fraud itself," that is, the misrepresentation
and its falsity. See, e.g., Widing v. Schwabe, Williamson & Wyatt, 154 Or App 276, 283,
961 P2d 889 (1998) (citing Mathies v. Hoeck, 284 Or 539, 542-43, 588 P2d 1 (1978)).
Here, plaintiffs' fraud claim is based on defendants' failure to disclose the existence and
terms of the signed retainer agreements and the escrow of those agreements before
plaintiffs signed the Mac/Stanley settlement agreement. Although the January 28, 1994,
letter from Kuhling warned plaintiffs that defendants might not have disclosed facts about
the negotiations leading up to the settlement and retainer agreements, as well as the
damages that plaintiffs may have suffered as a result of defendants' failure to disclose
information, a jury could find that plaintiffs had no knowledge of the alleged fraudulent
omissions, that is, the existence and terms of the retainer agreements and the escrow of
those agreements, until 1997, and that there are no facts from which such knowledge
could be imputed to them before then. We conclude, accordingly, that a jury could find
that the fraud claim based on the nondisclosure of the retainer agreements and the escrow
of the agreements did not accrue until 1997, when plaintiffs finally learned of the
omissions. Consequently, the trial court erred in concluding that plaintiffs' fraud claim is
time barred.
As an alternative ground for affirmance, defendants assert that the
complaint failed to state a claim for fraud because it did not allege damages that could be
recovered as a result of defendants' nondisclosure. The damages alleged in the complaint
on the fraud claim are the attorney fees that plaintiffs paid to defendants as their
contingent fee on the Mac Tools settlement and the fees paid to Kuhling.
The contingent fee paid to defendants out of the Mac Tools settlement
proceeds is not a cognizable form of damages for fraud, first, because the agreement to
pay those fees preceded the alleged fraudulent misrepresentation by more than a year.
Second, plaintiffs acknowledge that their claim for return of the fee is not based on the
reasonableness of the fee or on whether the settlement was a good or bad deal for them.
They assert, simply, that "disgorgement" of the fee is an appropriate remedy when a client
has been the victim of an attorney's conflict of interest. See Kidney Association of
Oregon v. Ferguson, 315 Or 135, 144, 843 P2d 442 (1992) (courts with authority to
review and allow a lawyer's fees have authority to address breaches of that lawyer's duty
of loyalty to the lawyer's client by denying part of or all the fees). It is true, as the
Supreme Court said in Dizick v. Umpqua Community College, 287 Or 303, 312, 599 P2d
444 (1979), that,

"when the alleged fraud does not involve the sale of property, the proper
measure of damages must be flexible to compensate the plaintiff for
whatever loss he has suffered."

Although we are not prepared to conclude that fees of the type paid to defendants would
never be an appropriate measure of damages for fraud, plaintiffs have not alleged any
facts that make the necessary nexus between the alleged fraud and the fees paid to
defendants.
The same concern applies to the fees that plaintiffs paid to Kuhling.
Plaintiffs incurred that expense because of the need to seek independent advice about the
proposed Mac Tools settlement and defendants' possible conflict of interest. Even if
defendants had made full disclosure of the escrow and retainer agreements, plaintiffs
would have incurred Kuhling's fees. We therefore affirm the trial court's dismissal of the
fraud claim because plaintiffs have not alleged damages resulting from the alleged fraud.
Affirmed.

"Except as otherwise provided in ORS 72.7250, if an action is
commenced within the time prescribed therefor and the action is dismissed
upon the trial thereof, or upon appeal, after the time limited for bringing a
new action, the plaintiff, or if the plaintiff dies and any cause of action in
the favor of the plaintiff survives, the heirs or personal representatives of
the plaintiff, may commence a new action upon such cause of action within
one year after the dismissal or reversal on appeal; however, all defenses that
would have been available against the action, if brought within the time
limited for the bringing of the action, shall be available against the new
action when brought under this section."

In Hatley v. Truck Insurance Exchange, 261 Or 606, 494 P2d 426, on reg'd, 495 P2d
1196 (1972), the court held that an action filed in federal court and dismissed for lack of
diversity jurisdiction could be refiled within one year of the dismissal pursuant to ORS
12.220.

2. In Greene, the court took pains to explain why the phrase "inquiry notice,"
as used in its prior case law, does not accurately describe the imputed knowledge
necessary to trigger the accrual of a claim under a rule of discovery limitation. 335 Or at
121-23.

3. These are the facts of which plaintiffs did not become aware until 1997:

"On January 11, 1994, at a meeting with Mac's lawyers, Brandt and
Griffin signed a retainer agreement with Mac Tools which guaranteed each
lawyer a $10,000 non-refundable retainer and provided that Mac would
indemnify Brandt and Griffin from any complaints brought against them as
a result of entering into the agreement. These agreements, along with
instructions signed by Brandt and Griffin, were put into escrow, only to be
released if all claimants, including Bramels, agreed to the settlement by
January 26, 1994. Brandt and Griffin never disclosed the retainer
agreements, the escrow, or the escrow instructions to their clients, Eric and
Audrey Bramel."